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Cheaper to buy a home than rent one

Cheaper to buy a home than rent one

Category: Mortgages

Updated: 16/10/2017
First Published: 17/03/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Owning a home is the dream of many, but unfortunately rising property prices have meant that dream has often been out of reach. However, latest research from Halifax should offer a glimmer of hope to aspiring homeowners keen to get their foot on the ladder – it's now cheaper to buy a home than it is to rent one, potentially leaving you £124 per month better off.

Own your home for less

The latest Halifax Buying vs. Renting Review, which tracks the cost of buying and renting a three-bedroom property in the UK, found that the typical monthly costs associated with owning a home (including mortgage payments, insurance, maintenance and income lost through funding a deposit rather than saving) amounted to £645 in December – 16% lower than the typical monthly rent of £769.

This is the largest cash difference since 2009, when the figure for owning and renting stood at £646 and £652 respectively, and it's also a stark contrast to 2008 when the situation was reversed, with it costing some £226 (31%) more to own a home than it did to rent one.

This change of fortune has been largely driven by average rents soaring by 18% (or over £100 per month) since 2009, while average ownership costs have fallen by almost a third since 2008 and are now remaining stable, arguably helped by record-low mortgage rates and, particularly since the launch of Help to Buy, the chance to save a smaller deposit.

Hopefully it's a trend that should continue, with the combination of increased rental costs and lower deposit requirements meaning more people should be incentivised
to own rather than rent. It's a great time to take the plunge as well – with mortgage rates being at such low levels, even for first-time buyers, monthly repayments could easily be much lower than rental costs.

"Buying will continue to be a more financially attractive option as the cost of owning a home remains stable," said Craig McKinlay of Halifax. "With greater availability of mortgages that require smaller deposits, the property ladder has also become even more accessible for those who can afford the monthly costs of owning but had previously not been able to save the necessary deposit."

A longer-term boost from Help to Buy?

In even more encouraging news for prospective homeowners, it looks like the Government's flagship Help to Buy scheme could be extended. Speaking to the BBC over the weekend, Chancellor George Osborne said that he planned to extend the equity loan part of the scheme – where borrowers can secure a new build home with just a 5% deposit and a 20% Government loan – to the end of the decade, rather than the current cut-off point of 2016.

This means more people will be able to get on the housing ladder, and it also means house building will be given an even bigger boost – the key to not only ensuring there are enough properties to go round, but to ensure house prices remain stable – with Mr Osborne anticipating that it'll result in 120,000 extra homes.

The mortgage guarantee element of Help to Buy, although not being extended as yet, has also had a significant impact on the potential to own a home. While saving enough for a deposit will remain a barrier for many, the increased availability of 95% LTV mortgages means more people can get onto the ladder with a smaller deposit, and that means more are able to benefit from the lower monthly costs involved.

Given it's easily cheaper to own a home than rent one, why not compare savings accounts to boost your deposit and get on the ladder even sooner? You'll want to take advantage of record low mortgage rates too, keeping your monthly ownership costs as little as possible.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.